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Executives

Douglas M. Sherk - EVC Group IR

Thomas S. Wu - Chairman, President and CEO

Dennis Wu - CFO and EVP

Jonathan H. Downing - EVP, Director of Corporate Development and IR

Analysts

Brett D. Rabatin - FTN Financial Securities Corp.

Andrea T. Jao - Lehman Brothers

Joe Morford - RBC Capital Markets

Aaron J. Deer - Sandler O'Neil

L. Erika Penala - Merrill Lynch

Frederick Cannon - Keefe Bruyette & Woods

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Don Worthington - Howe, Barnes, Hoefer & Arnett Inc.

UCBH Holdings, Inc. (UCBH) Q4 FY07 Earnings Call January 25, 2008 11:00 AM ET

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the UCBH Holdings, Inc. Q4 2007 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. [Operator Instructions]. This conference is being recorded today, January 25, 2008.

I would now like to turn the conference over to Mr. Doug Sherk with EVC Group. Please go ahead sir.

Douglas M. Sherk - EVC Group Investor Relations

Well thank you operator and good morning everyone. Thank you for joining us today for the UCBH fourth quarter 2007 conference call.

Before we begin, the company's earnings release announcing the fourth quarter of 2007 results was distributed yesterday after the market closed. If for some reason you haven't seen a copy of the release and would like one, please feel free to call our office at 415-896-6820 and we'll get you a copy immediately. There will be a seven-day replay of this call beginning approximately one hour after we finish this morning. Replay number is 800-405-2236 or for international participants, 303-590-3000. Both numbers require the passcode of 11101248 followed by the # sign.

Additionally, this call is being broadcasted over the Internet and can be accessed via the company's website at www.ucbh.com. I like to remind you that this conference call contains forward-looking statements regarding future events or the future financial performance of the company. Those forward-looking statements involve risks and uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors, include among other things, general economic and business conditions in the areas in which the company operates, demographic changes, competition, fluctuations in market interest rates, changes in business strategies, changes in credit quality and other risks detailed in the documents that company files from time to time with the SEC. We wish to caution you such statements are just predictions and actual results may differ materially. We refer you specifically to the company's latest Form 10-Q which has been filed with the SEC.

Before we begin, I'd like to remind our participants this morning that we like to have each questioner asked two questions and then re-queue to give everyone an equal chance. In advance, we thank you for cooperating with that process.

And now I'd like to turn the call over to Mr. Tommy Wu, Chairman, President and Chief Executive Officer of UCBH.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, Doug and good morning to everyone. We appreciate your joining us this morning for a review of our fourth quarter 2007 results. On the call with me today are Dennis Wu, our Chief Financial Officer, and Jon Downing, Director of Corporate Development and Investor Relations.

We would first like to discuss the operational highlights of this past quarter, and then review our strategy as we move forward to through 2008. At the conclusion of our formal remarks, we will take your questions.

I will now ask Dennis Wu to discuss our financial position and results of operations. Following Dennis' comments I would discuss our outlook for the year and our long-term business strategies. Dennis?

Dennis Wu - Chief Financial Officer and Executive Vice President

Thank you, Tommy and good morning everyone. I would like to provide an overview of our financial results for the fourth quarter of 2007.

Our net income for the fourth quarter was $20.1 million compared with $26.5 million for the fourth quarter of 2006. The diluted earnings per common share were $0.19 per share for the fourth quarter 2007 compared with $0.27 per share for the fourth quarter of 2006. The lower earnings reflect the write-down of two collateralized debt obligations or CDOs and a larger loan loss provision in the fourth quarter of 2007.

UCBH has very limited CDO exposure. The two CDOs which were purchased in 2005 were downgraded in late December 2007 by one of three rating agencies. One of the CDOs was downgraded to below investment grade. This, in combination with the significant drop in the market value of these CDOs in this illiquid market caused the company to conclude, it would be prudent to take the write-down on the securities. Even though our analyses of the securities indicate we will not have a loss of principal or interest on the bonds.

The company is comfortable with the current value of the two CDOs written down in December unless market conditions deteriorate significantly. UCBH does not intend to sell the CDOs. $8.1 million loan loss provision of fourth quarter of 2007 was made to strengthen our balance sheet, in consideration of current economic conditions, in anticipation of worsening of the U.S. economy and changes in loan mix and loan growth during the fourth quarter of the year.

The diluted earnings per share were $1.01 for the year just ended, compared with a $1.03 per share for 2006. Interest income for the fourth quarter of 2007 increased 30.3% to $185.9 million. Increase resulted from organic balance sheet growth and the acquisition of Summit National Bank in December 2006, and Chinese American Bank in May 2007.

Interest expense for the fourth quarter of 2007 increased by 30.5% to $99.8 million over the fourth quarter of 2006, reflecting the growth of the deposit portfolio and the competitive deposit pricing in the market that we experienced throughout the year.

Our net interest margin fourth quarter 2007 was 3.39%, compared with 3.34% for the fourth quarter of 2006. This increase in net interest margin reflects the effect of an 8 basis point increase in loan yields and the three basis point decrease in the funding costs.

The yield on loans was 7.75% for the fourth quarter of 2007 compared with 7.67% for the quarter ended December 31st, 2006. This is an 8 basis point increase over the fourth quarter of 2006 and an 18 basis point decrease over the third quarter of 2007.

Increase in loan yield reflects the continued improvement of our loan mix to increase profitability. Our average cost of deposits was 3.65% for the fourth quarter of 2007, a 15 basis point decrease over the third quarter of 2007 and an 11 basis point decrease over the fourth quarter of 2006, reflecting the changes in market interest rates and a competitive market rate environment during the year. We continue to focus on disciplined deposit pricing.

The provision for loan loss was $8.1 million in the fourth quarter of 2007 compared with a loan loss provision of $1.4 million in the fourth quarter of 2006. This reflects an increased provision that the company made to strengthen the balance sheet in consideration of the current economic conditions.

Non-interest income was a loss of $2.5 million for the quarter ended December 31st, 2007 compared with income of $12 million for the corresponding quarter of 2006. Included in non-interest income in the fourth quarter of 2007 was an $11.6 million charge representing the write-down on the two CDOs previously mentioned.

Decreases in gain on sale of multifamily and commercial real estate loans was partially offset by increases in commercial banking fees and service charges on deposit accounts.

Non-interest expense increased by 23% to $46.9 million during the fourth quarter of 2007. The increase was primarily the result of increased personnel costs and occupancy expenses related to the acquisitions of Summit National Bank in December 2006 and Chinese American Bank in May 2007, the additional staffing required by growing commercial banking business and the building out of our infrastructure to support our larger and growing organization.

I would now like to provide comments on the balance sheet as of December 31st 2007. Total loan growth for 2007 increased by 18.2% to $8.01 billion from $6.78 billion in 2006, following the securitization of $400 million of commercial real estate loans and $176 million of multifamily loans. The increase in loans reflects strong loan origination in 2007 and the acquisition of Chinese American Bank in May 2007 and Business Development Bank in December 2007.

The commercial business loans increased by 42.1% to $2.08 billion in 2007, and construction loans increased 58.1% to $1.67 billion during the year. Commercial real estate loans increased by $9.7 million following the internal securitization of $400 million of commercial real estate loans.

Excluding the securitization, commercial real estate loans increased by $409.7 million or 16.3%. Multifamily real estate loans decreased by $89.4 million following the internal securitization of $176 million of multifamily real estate loans. Excluding the securitization, multifamily real estate loans increased by $86.6 million or 6.9% during the year.

The interest rate profile of our loan portfolio is relatively consistent with last quarter. Approximately 61% of our loans are adjustable. Of the adjustable loans, about 67% are prime-based and 33% are LIBOR-based. Approximately 17% of our loans are intermediate fixed with approximately 3 years to enroll. Of this total approximately 78% are LIBOR or CMT and 22% are prime-based. Given our strict credit criteria, we do not now have nor have we ever had any sub-prime loans in our portfolio.

New loan commitments for 2007 totaled $4.11 billion compared with $3.51 billion in 2006. With a strong loan pipeline of $2.48 billion as of the end of December 2007, we project good loan growth of 10% to 12% in 2008.

New commercial business loan commitments were $1.19 billion in 2007 compared with $1.18 billion in 2006. Construction loan commitments for 2007 were $1.29 billion compared to $1.06 billion in 2006. Commercial real estate originations were $1.05 billion in 2007 compared with $903.3 million in 2006. And multifamily real estate originations were $380.3 million in 2007 compared with $241.1 million in 2006.

Total deposits grew by $578.4 million in 2007, an increase of 8%. Non-interest bearing accounts increased by $92.6 million or 12.1% annualized during the year. With the challenging deposit market, we are focused on building both consumer and trade finance related core deposits and are showing growth and momentum in our demand deposit accounts. We will continue to focus on growing non-interest checking accounts thereby improving our net interest margin. Despite the unsettled nature of financial markets, our credit quality continues to be strong. We adhere very prudent criteria in the underwriting of our loans. In view of the issues in the U.S. economy at this time, we feel that a more detailed discussion of our credit quality is in order.

With this discussion, I turn the call back to Tommy Wu.

: Thomas S. Wu: Thank you, Dennis. Since becoming a commercial bank in 1998, our focus has always been on maintaining high credit quality. Our underwriting criteria were designed to adhere to that standard. Since that time, we have not deviated from the criteria we originally implemented, and we have benefited from business expansion.

Every bank in the industry has been affected by the current economic conditions, and we are no exception. However, despite this challenging banking environment, our credit quality has remained strong.

In the fourth quarter of 2007, we made an $8.1 million provision for loan losses, increasing the provision in recognition of the current economic environment and to strengthen our balance sheet, better positioning our sales for 2008. We believe this is a conservative and prudent move at this point in time given the uncertainty. The provision increased our reserve ratio by 4 basis points. The ratio of allowance for loan losses plus unfunded commitments to loans held in portfolio excluding cash secured loans, was 1.05% at December 31st 2007.

Our non-performing assets at December 31st 2007 were $46.6 million compared with total non-performing assets of $36.9 million at September 30th 2007. Our non-performing assets ratio at December 31st 2007 was 39 basis points, compared with 33 basis points reported in the third quarter of 2007.

Net loan charge-offs were benign. They were $2.2 million for the quarter ended December 31st 2007, compared with net loan charge-offs of $2.6 million for the corresponding quarter of 2006. Net loan charge-offs were $7.6 million or 11 basis points for the full year of 2007 compared with net loan charge-offs of $10.2 million or 17 basis points for 2006.

The loan delinquency ratio was 1.45% at December 31st 2007, compared with 84 basis points at December 31st 2006. The total classified loans increased to $107.2 million at December 31st 2007, up from $61.5 million at September 30th 2007. Included in the classified loans at December 31st 2007 are three loans totaling $6.6 million from Business Development Bank acquisition for which we see little if any loss exposure.

During the fourth quarter, we completed a detail review of our construction loan and CRE portfolios, as discussed on the third quarter earnings conference call. During this process, we identified several loans that we are monitoring very closely but believe that any credit risk on these loans is manageable. We are taking a very conservative approach in the review process. And as a result, the classified assets increased to reflect our diligent credit management process.

In addition to the strong credit risk management process we have established in the United States, we have created a new credit committee that will approve credit proposals from UCB China Limited for any credits over $2 million U.S.

We are pleased with the credit quality of the current portfolio at UCB China Limited. However, the committee will focus on further enhancing the credit management process at UCB China Limited. The goal is to build a very high quality commercial and trade finance portfolio in the coming years. This committee is chaired by UCB Chief Credit Officer, John Kerr and includes the Director of our Greater China region Tony Tsui as a member of the committee. All of these UCB officers are seasoned banking professionals with long and successful credit management track records.

Our business momentum remains very strong, and our trade finance business has been particularly successful. We are pleased with our $1.2 billion commercial business loan originations during the year, and we will continue to grow this portfolio.

In 2008, we will leverage our very unique trade finance in Greater China platform to grow our commercial lending and trade finance business. In fact, out of the $2.5 billion loan pipeline at the end of 2007, over 50% is in commercial lending and trade finance business. And we therefore anticipate strong growth in this line of business in the year.

Our operations in New York are doing very well, and we are pleased with our progress over there. New York is a key growth area for us in 2008, and we will be opening a new branch in Brooklyn, before the end of the second quarter of this year.

Consumer banking business is very strong in new... in this market, and we also grew our trade finance substantially in 2007 in the New York region.

We continue to focus on building commercial business relationships in Southern California, another market area where our trade finance business is flourishing. Houston is also a robust market, and we are increasing brand recognition and market share in the South Texas area. Loan and deposit growth is also robust in the Seattle market where economy is very stable.

Our progress in Greater China has exceeded our expectations and contributed to our becoming a very different institution, bigger, stronger and much more diversified than we were three years ago. Our presence in different regions has not only honed our expertise in trade finance business... expands that line of businesses potentially for us, but has also better positioned us to weather the economic downturns in the United States.

Our Hong Kong branch continued to do very well with trade fees increased 58% in 2007 compared to 2006. Deposits also increased to $1.1 billion at the year end 2007. Profit before tax for the Hong Kong branch increased 185% in 2007 compared to 2006. We anticipate Hong Kong branch will continue to grow strongly in the coming year.

The acquisition of Business Development Bank was completed in December 2007 and has since become part of UCB, as United Commercial Bank China Limited. UCB China Limited's loan portfolio was $278 million at December 31st 2007, an increase of 51% during the year. The customer base grew by 44% during 2007. And the focus on lending to small and medium sized enterprises provides us access to a market with huge growth potential.

In 2008, we're trying to open a new branch in China, in a market area where trade finance business opportunity is very strong. We are pleased with the current momentum at UCB China Limited. We booked US$60 million of new commercial business loan in the SME sector two weeks after we closed the acquisition in December.

Average loan size for this US$60 million C&I loan is small and the credit quality is very high. We anticipate in coming five years... the coming five years will be high growth years at UCB China Limited and our focus will continue to be in commercial and trade finance business.

Our Greater China strategy has been further enhanced by our strategic alliance with China Minsheng Banking Corporation Limited. Minsheng, a leading Chinese banking institution headquartered in Beijing is making a strategic minority investment in UCBH. This transaction has just been approved by the China Banking Regulatory Commission. Now Minsheng is now in a procedural registration process with Chinese State Administration of Foreign Exchange.

We anticipate closing just that one of the transactions very shortly. Minsheng has 300 branches and 1400 ATMs serving 24 cities in 14 provinces across China. Approximately 60% of its branches are located in economically wealthy cities. Minsheng's initially [ph] opened 9% investment in UCBH will increase to an overall stake of 9.9% in 2008 for a combination of secondary share purchased and our primary share issuance in a proportion to be determined by UCBH.

The advantage of this transaction to us are substantial. It will broaden access to capital to fund our future expansion, enhance our platform for cross-border business and deepening our cross-border expertise, increase customer convenience and improve our knowledge of the Greater China market. We have already formed a taskforce to form... to work with the senior executives of Minsheng to help us leverage the strengths of both banks to increase market share in our up-market areas. All of us at UCBH are very excited with this strategic partnership.

Now, I would like to provide an outlook for 2008. We project that Fed funds raise will be eased by 100 basis points during the first half of 2008. The 75 basis point cut made by the Fed last Tuesday is expected to be followed by further cuts as the year progresses. Our business plan for 2008 takes into account these anticipated actions by the Fed.

In light of the current economic conditions, we believe high loan growth in the construction lending is certainly not a sound business strategy in 2008. We're focused on trade finance and commercial business lending activities. We will slow down the real estate loan growth in 2008 and continue to diversify our loan growth in geographical areas with stable economy.

In order to dilute the concentration of our real estate exposure, we will continue to sell CRE and grant multifamily loans during the course of the year. We will also securitize multifamily loans and residential mortgage loans during the year. We project 2008 loan growth will be around 10% to 12%.

We are projecting non-interest checking account growth in the range of 10%to 15% in 2008. We will be focusing on core deposit growth in the consumer banking area. We project core account growth in the range of 10% to 15% during the year. We do have a solid strategy and platform in place to continue to grow our core deposits in different markets.

Our two key strategies for 2008 will be, first, to ensure our credit quality remains solid and strong; and second, to focus on expanding our commercial and trade finance business both domestically here in the United States and across the Pacific Rim in Greater China.

The key drivers for 2008 profitability growth will be: first, strong top-line growth at 18% to... at around 18%. The 30% increase in net interest income in the fourth quarter of 2007 is a strong and good indicator. Net interest margin will be improved to 3.6% to 3.65% in the fourth quarter of 2008.

Strong increase in trade fees and deposit services... service fees. The 87% increase in deposit service fee and 43% increase in trade fees in 2007 demonstrate our success in these areas. We project another 30% increase in deposit service fees and 50% in trade fees in 2008.

We will be conservative in loan loss provision in 2008, given the current uncertain economic conditions. We project that loan loss provision per quarter will be in a range of $3.5 million to $4.5 million. We project that we will have continued positive operating leverage in 2008, and we remain diligent in cost management as we continue to grow our business.

Non-interest expense growth will be in a range of 18% for the year... I am sorry, in the range of 20% for the year. We project tax rate will be in the range of 34.5% to 35.5% for 2008. The efficiency ratio will be in the range of 45% to 48% in the fourth quarter of 2008.

Return on assets will also improve to 1.2% to 1.25% and return on equity to approximately 12.5% to 13.5% in the fourth quarter of 2008. As we have put a very unique platform in the past couple of years, we believe we are well positioned to grow our franchise despite the current economy. We are optimistic about our future in profitability growth, and our Board of Directors has approved an increase of our quarterly dividends from $0.03 to $0.04 per share in 2008.

2008 will be a record year for UCBH, and we are providing an earnings guidance in the range of $1.15 to $1.18 per share for the year.

That concludes our formal remarks this morning. Thank you again for participating in this call. I would now ask the operator to open up the lines for any question you might have. Thank you very much.

Question And Answer

Operator

Thank you sir. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Brett Rabatin from FTN Midwest. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Brett, good morning.

Brett D. Rabatin - FTN Financial Securities Corp.

Good morning, Tommy. How are you?

Thomas S. Wu - Chairman, President and Chief Executive Officer

I am good. Thank you.

Brett D. Rabatin - FTN Financial Securities Corp.

Two questions for you obviously. First, I wanted to get some color on the margin. And you indicated on the guidance, I think for 3.60 to 3.65 that was by the end of the year, correct?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Yes.

Brett D. Rabatin - FTN Financial Securities Corp.

And you were talking about the margin being 3.50 to 3.60 at the end of 07 during 3Q. Can you give us any color on where that was at the end of the year? And then, obviously the cost of CDs at 495 for the fourth quarter. Seems like that could be an area of opportunity. Can you just walk us through how you are going to fund the growth in '08? And just what are the various components of decreasing the cost of funds and whether you will be more aggressive with borrowing sources and what not?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Yes. When we did the third quarter conference call, we actually mentioned that should that be definitely cut in the fourth quarter? And there will be a 5 basis point impact to our margins... that's exactly the 5 basis points, we are talking about. There is a lot of opportunities in Q1 and Q2 in this year in terms of the reduction of the CD cost that will actually help us to improve the margins significantly, particularly after the Q2. So we expect Q1 margin will be in a range of 3.12% or 3.15% and then actually will improve to about 3.42% to 3.45% in the second quarter. So the margin improvement will be quite significant than in the third and fourth quarter of the year. Majority of the loan growth will be funded by CD growth and also the core deposit growth during the year.

Brett D. Rabatin - FTN Financial Securities Corp.

Okay. And then secondly, I was hoping to get some clarity. You mentioned a 100... I think it was a $107 million of classified loans Tommy. Can you give us any color on the increase from the previous quarter? Was it more special mansion or what was the... obviously NPAs didn't move up much. And so I'm sure people will be looking for some additional color on what the various components of classified loans you had during the fourth quarter?

Thomas S. Wu - Chairman, President and Chief Executive Officer

We actually as I said we did a review of our construction portfolio and CRE portfolio in the fourth quarter. And we actually downgraded two CRE loans in Northern California, one CRE loan in Atlanta and three constructions in Northern California and one construction in Southern California. We don't expect a lot of losses in these loans but we just want to be very prudent in the credit management process. So, it's between special mansion and substances [ph] on all this kind of classification during the fourth quarter.

Brett D. Rabatin - FTN Financial Securities Corp.

Okay great. Thanks for the color Tommy.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you very much.

Operator

Our next question comes from Andrea Jao from Lehman Brothers. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Andrea, good morning.

Andrea T. Jao - Lehman Brothers

Hey good morning everyone. Well, earlier you mentioned that loan loss provisioning should be $3.5 million to $4.5 million per quarter in 2008. Hoping to get a bit more detail as to how much you are setting aside for U.S. growth versus China growth? And given that how much net charge-offs do you expect... I guess in '08 it'd mostly be in the U.S. but how much charge-offs do you expect and non-performers do you expect in the U.S. versus in China?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well, I expect there has been more charge-offs in China to be honest with you, because the loan side is very small. And we look at the credit policy is pretty strong. I think out of $3.5 million to $4.5 million per quarter provision which we are putting into budget for 2008, I would expect between $0.5 million to $1 million provision for UCB China Limited per quarter. It depends on the loan growth and also the types of loans we are booking over there. Because as you know well we are booking majority of 99% of those loans are in the commercial business area. So those actually deserve a higher loss factor. And that's why I think it's prudent for us to put more, we said, allowance in the budget to account for those loan growth in... during the year.

Andrea T. Jao - Lehman Brothers

Okay.What's your outlook for net charge-offs for 2008?

Thomas S. Wu - Chairman, President and Chief Executive Officer

About 10 basis points. I am sorry. Jon you may want to --

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

Not to surge [ph] this year. They may uptick a little bit but will be in a range about between 10 and 20 basis points total.

Andrea T. Jao - Lehman Brothers

Okay. Thank you so much.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, Andrea.

Operator

Our next question comes from Joe Morford from RBC Capital Markets. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Joe good morning.

Joe Morford - RBC Capital Markets

Good morning, Tommy. Just curious in general what kind of growth expectation, loan growth expectations you have for China and just kind of big picture, how do you look at that kind of capital allocation decision about growing over there versus some of the markets here and how you plan to fund that growth over in China?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well right now, the UCB China Limited is really overcapitalized because at the time we closed the transaction we will... UCBCL allowed us and approve us to increase the capital to $1 billion R&D. And that's also the minimum capital requirement for a foreign incorporated bank in the Mainland China. So for now I think for the next three years we don't have to worry about capital injection for UCB China Limited. We expect a couple of hundred million dollar growth in the Houston... in this trade finance business in China for 2008. And it would be funded by a deposit growth and also some of independent borrowings in China at this point in the first year.

And then second year, I think we expect the deposit growth will be growing quite substantially because of the platform we're going to be building over in China and also the customer relationships we have established over there.

Joe Morford - RBC Capital Markets

Okay. And I think just the other question which is the related to the Minsheng transaction. Sounds like that the first part of that the 4.9 stake will close, shortly, when would expect them to take stake their stake up to 9.9 and you know what current plans do you have for the capital?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Now the 4.9% should be closed very shortly because the state registration is a procedural process and should not have a problem. They plan to close the deal in... by the end of March. But it's really up to us to decide when exactly we want to do that. So, latest will be by the end of 2008.

But according to the Executive and the Chairman of China Minsheng Bank, they want to do it as soon as possible. So, hopefully they would like to conclude this increase to 9.9% by the end of March.

Joe Morford - RBC Capital Markets

Okay. And can you remind as to what kind of pricing that's done at? Is it at the same price at the first 4.9 stake is or is it just a certain percentage premium over the current stock price?

Thomas S. Wu - Chairman, President and Chief Executive Officer

About the first 4.9% the price would have been fixed at $17.79. I wish this up to will be the same but it's not, it's 5% over the... 5% premium over the average closing price of the closing 20 trading days. So, it depends on the market price plus 5% premium for the 9.9% for the second chance this up to.

Operator

Our next question comes from Aaron Deer from Sandler O'Neil. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi, Aaron.

Aaron J. Deer - Sandler O'Neil

Hey good morning.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Good morning. How are you?

Aaron J. Deer - Sandler O'Neil

I am doing well. Thanks Tommy. I guess following up on the China questions. I was just wondering what's the status on the application for a license to make loans and take deposits in RMB?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well, we do have a RMB license for foreign companies and joint venture companies and also foreign individuals. We were told that the local RMB license will be received before the Chinese New Year.

Aaron J. Deer - Sandler O'Neil

Okay, that's great. And then, just I guess a question on the securitizations. And any sense of what levels of securitizations will be planned for over the course of the year?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Jon, do you want to answer?

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

Surely. For the 2008 year, we anticipate having about 450 to 550 of securitizations. And that would be broken down perhaps into about multifamily $400 million and residential one-to-four about $150 million.

Aaron J. Deer - Sandler O'Neil

Okay, that's great. Thank you.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, Aaron.

Operator

Our next question comes from Erika Penala from Merrill Lynch. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Erica, good morning.

L. Erika Penala - Merrill Lynch

Good morning, Tommy. I just wanted to follow up on to Andrea's question. In terms of your loss outlook, what type of economic scenario is that based upon? And if it's not... and if we fall into recession what do you think the risk... the downside risk to your loss outlook is?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well, the loss outlook is already incorporated while we anticipate in terms of the economy for the year 2008.

L. Erika Penala - Merrill Lynch

Okay. And you...

Thomas S. Wu - Chairman, President and Chief Executive Officer

I'm sorry.

L. Erika Penala - Merrill Lynch

Do you expect a slowdown or an outright new recession?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well we actually... we are in a recession right now. Let's put it this way. And because of the Fed fund... Fed actions, I think the... we believe will not be getting the very deep deep, recession. We will be a mild recession. And also because of the anticipated Fed fund rate cut during the first half of the year. We believe that, that will help the economy to grow and stabilize, if you will. So, everything has already been considered, incorporated in our budget for 2008.

L. Erika Penala - Merrill Lynch

And in terms of your trade finance business, what are your expectations for losses in 08? Do you expect that to be relatively insulated from what's happening in the U.S.?

Thomas S. Wu - Chairman, President and Chief Executive Officer

The losses for commercial business for 08 will be pretty benign, because the... we expect the trade will continue to grow for the fact of the matters, because the interest rate actually has come down quite significantly like 150 to 200 basis points. We didn't lower the cost of doing business for a lot of importer and wholesaler. It would help the business indeed for the commercial banking business.

Operator

Our next question comes from Fred Cannon from KBW, please go ahead.

Frederick Cannon - Keefe Bruyette & Woods

Thanks. Good morning, Tommy.

Thomas S. Wu - Chairman, President and Chief Executive Officer

How are you?

Frederick Cannon - Keefe Bruyette & Woods

Good. Just following up on the CDO write-down. Was the write-down that you referred to the 11.9, was that at the same as the discussion in the 10-Q that referred to a notional amount of $20 million? And so was it right to think that you wrote down those CDOs by roughly 58%?

Thomas S. Wu - Chairman, President and Chief Executive Officer

That's exactly right.

Frederick Cannon - Keefe Bruyette & Woods

Okay. Thank you. And then just a follow up on Joe's question. I was wondering if you could give us a little guidance as to where you see your capital ratios following the infusion by Chinese Minsheng Bank by the end of the year?

Thomas S. Wu - Chairman, President and Chief Executive Officer

I think we have been some competition. I think Jon, can you answer the question?

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

Certainly. Good morning Fred.

Frederick Cannon - Keefe Bruyette & Woods

Good morning.

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

Capital ratios for our total risk-based capital are focused on the bank level because that's the more vulnerable, will be approximately 11% and the tier-one leverage ratio will be north of 8%.

Frederick Cannon - Keefe Bruyette & Woods

And that will be the end of this year?

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

End of 2008.

Frederick Cannon - Keefe Bruyette & Woods

Perfect. All right, thanks very much.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, Fred.

Operator

Our next question comes from James Abbott from FBR Markets.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi James, good morning.

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Hey good morning. Could you give us a sense of whether you would be willing to take on more commercial real estate loans onto the portfolio during the year? That from... I understand from the loan growth assumptions of 10% to 12%, there is not a lot of commercial real estate loan growth embedded in that. But the spreads have widen pretty substantially on that product as the conduits are sort of out of that market. What's your current discussion on that?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well we will continue to do our real estate loans but we also want to be realistic. Because of the economy we don't want to be too aggressive in terms of projecting a very high level growth in the CRE arena. But we do have a very strong underwriting process in place, and we do have a very strong underwriting criteria in place. So we will continue to build relation with good customers who are trying to buy real estate loan or because of the real estate... because of the interest rate environment has come down there might be some good refinance opportunity as well.

So it will be a good growth but it would be not be what... we don't want to be too aggressive in terms of the budgeting process. So that's why we are... we just want to be a little bit conservative in the loan growth projection for the year until we have a clear picture in terms of the economy. Then I think we could be a little more aggressive in the budgeting process. But at this point in time we feel that this is more a prudent approach to consider in light of the current economic condition.

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Okay, thanks. My second question is on deposits, I think. Can you give us a sense of how you... the change in rates that you've offered on CDs between December and today? There's been a pretty substantial shift downward in the market. Just wanted to get a sense as to how much UCBH has done?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Well we actually have been cutting our deposit rate very aggressively in the last couple of weeks and... in anticipation of the rate cuts. Of course, the Tuesday's 75 basis points, it was a kind of a surprise for everybody. But we already have taken immediate action to cut CD rates and also some of the core deposit rates. So we anticipate there will be a major shift in terms of the deposit cost in the first and second quarter because of the downward industry environment. So that will be a benefit to us once the CDO repriced.

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Okay, thanks.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, James.

Operator

Our next question comes from Don Worthington from Howe Barnes Hoefer & Arnett, please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Don, good morning.

Don Worthington - Howe, Barnes, Hoefer & Arnett Inc.

Good morning. Just wanted to get a little more color if you could on delinquencies at 145% just roughly what the components are in the delinquent loans?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Indeed, some of them actually are in CRE. Construction is very little and some one or two multifamily loans. So it's actually across. But because some of the CRE loan is a bit larger amount, that actually scrubbed the delinquency ratio. The high, actually highly internal collateral is very good collateral, we don't expect any losses.

Don Worthington - Howe, Barnes, Hoefer & Arnett Inc.

Okay. Great. And then you mentioned certainly slowing down on the construction lending activity. I assume you're still going to do some of that but just at lower levels.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Yes.

Don Worthington - Howe, Barnes, Hoefer & Arnett Inc.

Okay. Thank you.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you very much.

Operator

[Operator Instructions]. We have a follow-up question from Erika Penala.

Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi Erica.

L. Erika Penala - Merrill Lynch

Hey Tommy. I just wanted to ask you about the increase in construction loan commitment on a sequential basis. Given your cautious outlook, is this mostly out of California? And also how does it break down in terms of your pipeline between residential and commercial construction?

Thomas S. Wu - Chairman, President and Chief Executive Officer

Yes. It's actually out of California, it is in New York, it is in Seattle. Those are really commercial projects. So those are really strong borrowers. It's really good projects. And so that's why we are still doing those loans. But we are slowing down the construction lending business. That doesn't mean that we stopped doing business. It's just that we want to be extremely careful in terms of selection of projects and also the market areas. We will continue to build relationship with our high quality borrowers. We actually continue to help them to fund those projects in a very stable market environment.

L. Erika Penala - Merrill Lynch

Thank you, Tommy.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thank you, Erica.

Operator

We have a follow up question from James Abbott. Please go ahead.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Hi James.

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Hey, again. One real quick question on the 10% to 12% loan growth assumption, is that net of loan sales and securitizations? Or is that gross of loan sales and securitization?

Jonathan H. Downing - Executive Vice President, Director of Corporate Development and Investor Relations

Well the 11% loan growth as Tommy cited James, would actually be excluding the $550 million in securitizations but it would factor in the loan sales.

James Abbott - Friedman, Billings, Ramsey & Co., Inc.

Okay. Thanks.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Thanks James.

Operator

There are no further questions. Please go ahead with any closing remarks.

Thomas S. Wu - Chairman, President and Chief Executive Officer

Once again thank you very much everybody participating in this call. Should you have any further questions please feel free to call anyone of us. Thank you and have a nice weekend. Bye-bye.

Operator

Ladies and gentlemen this concludes the conference call. If you would like to listen to a replay of today's conference, please dial 800-405-2236 or 303-590-3000. The access code will be 11101248 followed by the # key. AT&T would like to thank you for your participation. You may now disconnect.

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Source: UCBH Holdings, Inc. Q4 2007 Earnings Call Transcript
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